The catch-all category for my blogs reflecting my professional expertise as a full professor of economics.

Seeking zero fiscal deficits is not a progressive endeavour

There was a most extraordinary Opinion piece in the British paper The Independent last weekend (June 13, 2015) – Labour should have managed the economy better when in power. It was written by the aspiring Labour spokesperson on business, innovation and skills, one Chuka Umunna, who in the days following their electoral loss advanced his name for leadership. His outlook, inasmuch at it represents where the British Labour Party is heading will render them irrelevant for years to to come (the Tories do this stuff better) and is almost indistinguishable from the growth strategy advanced by the Conservative Australian government in its most recent fiscal statement – more private debt driven by fiscal surpluses. We have been there before – it turned ugly as it always was going too. It is quite clear that comprehension of basic macroeconomics is light on the ground when it comes to Umunna and his ilk. A very sorry state.

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Time to expand public service employment

Back in 2010, in the early days of the GFC, the then Australian Labor government was weathering a conservative storm for daring to introduce a large-scale (and rapid) fiscal stimulus. The package had several components but the most controversial were the decision to introduce a homeinsulation program to create jobs quickly but leave a residual of green benefits (lower energy use in the future). The program had problems but still produced fantastic macroeconomic benefits. It was little wonder that the program stumbled operationally given its complexity and the degraded capacity of the Federal public service, which has been degraded by several decades of employment cuts and restructures under the neo-liberal guise of improving ‘efficiency’. However, that mantra might be finally turning. An article in the right-wing Australian Financial Review (June 14, 2015) – Time to end outsourcing and rebuild the public service – made the extraordinary argument for that publication that public service employment had to increase to allow the government to do what the Federal Communications Minister calls “the legitimate work of the public service”. Wonders never cease.

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Fiscal stimulus does not necessarily mean large government

There was an interesting if not ego-centric interchange last week involving the New Keynesian economist Paul Krugman and others about whether the sort of macroeconomic policy positions one takes is more motivated by ideological motives (about the desirable size of government) rather than being evidence-based. Apparently, if you support austerity it is because you really just want smaller government and vice versa. This is an oft-stated claim made by conservatives. That if you support fiscal stimulus and government regulation that you are automatically in favour of big (intrusive) government. The point is not valid. Whether one supports a larger proportional government or smaller is a separate matter to understanding how the monetary system functions and the capacities and options available to the government. Modern Monetary Theory (MMT) provides the basis for that understanding but not a prescription for a particular size of government.

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Friday lay day – Minimum wage in Australia creeps up

Its my Friday lay day blog but no rest for the wicked today. The Fair Work Commission, the Federal body entrusted with the task of determining Australia’s minimum wage handed down its – 2014-15 decision – on June 2, 2014. Here is my annual review of that decision plus some. The decision meant that more than 1.86 million of our lowest paid workers (out of some 11.6 million) received an extra $16.00 per week from July 1. This amounted to an increase of 2.5 per cent (down from last year’s rise of 3 per cent). The Federal Minimum Wage (FMW) is now $656.90 per week or $17.29 per hour. For the low-paid workers in the retail sector, personal care services, hospitality, cleaning services and unskilled labouring sectors there was no cause for celebration. They already earn a pittance and endure poor working conditions. The pay rise will at best maintain the current real minimum wage but denies this cohort access to the fairly robust national productivity growth that has occurred over the last two years. The decision also maintains the gap between the low paid workers and other wage and salary recipients, who themselves are suffering a major wages squeeze as corporate profits rise. The real story though is that today’s minimum wage outcome is another casualty of the fiscal austerity that the Federal Government has imposed on the nation which is destroying jobs and impacting disproportionately on low-paid workers.

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The ‘fiscal space’ charade – IMF becomes Moody’s advertising agency

The IMF has taken to advertising for the ratings agency Moody’s. It is a good pair really. Moody’s is a disgraced ratings agency and the IMF has blood on its hands for its role in less developed nations and for its incompetence in estimating the impacts of austerity in Europe. Neither has produced research or policy proposals that can be said to advance the well-being of nations. Moody’s has shown a proclivity to deceptive behaviour in pursuit of its own advancement (private largesse). The IMF struts around the world bullying nations and partnering with other institutions to wreak havoc on the prosperity of citizens. Its role in the Troika is demonstrative. Anyway, they are now back in the fiscal space game – announcing that various nations have no alternative but to impose harsh austerity because the private bond markets will no longer fund them. They include Japan in that category. Their models would have drawn the same conclusion about Japan two decades ago. It is amazing that any national government continues to fund the IMF. It should be disbanded.

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Time to end the human rights atrocity in Gaza

There were three new data and analysis releases in the past week in advanced Western nations (the US, the UK and Australia) that indicate that the policy settings that are in place are not delivering prosperity and should be changed to allow governments more fiscal freedom to stimulate growth. But while these nations continue, variously, to endure the costs that the wrongful policy settings have wrought, a World Bank report issued last week (May 27, 2015) – Economic Monitoring Report to the Ad Hoc Liaison Committee – allows us to understand a little bit (in numbers and narrative) the terrible (“staggering”) cost of the blockade on the Gaza economy and living standards of the Palestinian people in that region. The plight of the advanced world is nothing by comparison, not that I want to get into a relativist defense of the situation in the advanced world.

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Bank of England finally catches on – mainstream monetary theory is erroneous

The Bank of England released a new working paper on Friday (May 29, 2015) – Banks are not intermediaries of loanable funds – – facts, theory and evidence (updated June 2019) – which further brings the Bank’s public research evidence base into line with Modern Monetary Theory (MMT) and, thus, further distances itself from the myths that are taught by mainstream economists in university courses on money and banking. The paper tells us that the information that students glean from monetary economics courses with respect to the operations of banks and their role in the economy is not knowledge at all but fantasy. They emphatically state that the real world doesn’t operate in the way the textbooks construe it to operate and, that as a consequence, economists have been ill-prepared to make meaningful contributions to the debates about macroeconomic policy.

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The rise of non-standard work undermines growth and increases inequality

One of the on-going themes that emerges from the neo-liberal commentariat is that fiscal deficits undermine the future of our children and their children because of the alleged higher implied tax burdens. The theme is without foundation given that each generation can choose its own tax structure, deficits are never paid back, and public spending can build essential long-lived infrastructure, which provides benefits that span many generations. The provision of a first-class public education system feeding into stable, skilled job structures is the best thing that a government can do for the future generations. Sadly, government policy is undermining the future generations but not in the way the neo-liberals would have us believe. One of my on-going themes is the the impact of entrenched youth unemployment, precarious work and degraded public infrastructure on the well-being and future prospects of society as neo-liberal austerity becomes the norm. This theme was reflected (if unintentionally) in a new report, release last week by the OECD – In It Together: Why Less Inequality Benefits All. The Report brings together a number of research findings and empirical facts that we all knew about but are stark when presented in one document.

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Neo-liberal dynamics restored after the shock of the GFC

There was an article in Bloomberg Op Ed yesterday (May 19, 2015) – U.S. Workers Brought the ‘Great Reset’ on Themselves – which argues that those who bemoan the falling standards of living for workers in terms of job stability, real wages growth etc have only themselves to blame because as workers they demand conditions that they are not prepared to sustain as consumers and taxpayers (higher prices, higher taxes). It is an extraordinary argument not because there are not elements of truth in it, but, rather, because it ignores other realities such as the rising income inequalities and the on-going redistribution of national income to profits. It also tallies with what is going on in Australia at present, which is a specific form of the on-going attack on real standards of living for workers and their families through poorly crafted government policy. The policy design reflects ideology rather than any appreciation of what is required to maintain living standards.

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Time for progressives to adopt more direct actions

Australia is about to walk the plank and sign up to the Trans-Pacific Partnership even though much of the contents will not be publicly disclosed. Last week, the US President unsuccessfully tried to get US Senate approval to fast track the authority to commit America to the TPP. His failure in that regard will not stop the process. It appears that if the TPP is introduced corporate control of government discretionary policy through the so-called “investor-to-state dispute settlement” clauses will be much enhanced. This is not an arrangement to make trade fairer and to enhance the well-being of poorer nations or to expand the choice of richer nations. The TPP builds on the punitive measures in various World Trade Organisation agreements, which give multinational corporations substantial legal bite to resist regulatory environments set up by democratically elected governments and to punish nations that resist the dictates of international finance capital. No government in its right mind would sign up to these agreements on behalf of their nations. I will have more to say about the TPP when we know more. But all of this bears on the question of who influences public policy and if we don’t like it what can we do about it. That is the topic of this blog.

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